Econ Test 2

STUDY

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provide firms with the incentive to decrease the level of activity creating the pollution

An example of an implicit cost of production is

the income an entrepreneur could have earned working for someone else

Productive efficiency occurs in perfect competition because the firm produces at the minimum of the:

average total cost curve

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Which of the following is true of perfectly competitive firms?

It is difficult for entrepreneurs to become suppliers of a product in a perfectly competitive market structure, a perfectly competitive firm has a perfectly elastic supply curve, In a perfectly competitive market, an individual seller can change his price and it will not alter the output he sells > NONE OF THE ABOVE

If after she buys a car with air bags, Maria Andretti starts to drive recklessly, that would be an illustration of:

the moral hazard problem

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Which of the following is most likely a fixed cost?

Property insurance premiums

If the government wanted a tax to reduce the quantity exchanged a large amount but not raise much in tax revenue, it would want to tax an industry with

elastic supply and demand curves

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If teh government imposes a pollution tax on gasoline refineries

the supply of gasoline will shift to the left

Which one of the following is not a characteristic of a perfectly competitive market?

Firms advertise in order to distinguish their products and increase market share

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Which of the following is potentially an option to save Social Security?

Increasing the payroll tax rate, increasing the age required for full time benefits, implementing means testing > ALL OF THE ABOVE

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Which of the following is true for a monopolist but not for a perfectly competitive firm?

Marginal revenue is less than price, economic profits could be earned in the long run - Both are true

As a result of the imposition of a tax on a product (assuming neither curves are perfectly elastic or inelastic):

some consumer and producer surplus is transferred from buyers and sellers to the government

Because of the problem of second-hand smoke, if unregulated, the market for cigarettes would produce a quantity that is too _____ at a price that is too _____ when compared to the socially optimal results.

High, low

A profit maximizing perfectly competitive firm would never operate at an output level where

it would not cover all of its variable costs

When marginal cost exceeds the average variable cost, average variable cost must be increasing.

False

When negative externalities are present, it leads to an underallocation of resources.

False

IN the long run, a perfectly competitive firm is expected to generate either an economic profit or an economic loss.

False

Whenever marginal revenue is greater than marginal cost, a profit-maximizing firm should reduce its output.

False

The more elastic the demand curve, the smaller is the deadweight loss resulting from the imposition of a tax.

False

Taxes for the most part are efficient because they retain incentives and align the values that buyers and sellers place on goods and services.

False

A monopolist restricts output and charges a higher price relative to what would occur if a market were perfectly competitive.

True

An economic profit of zero indicates a satisfactory situation for a firm.

True

A natural monopoly exists when one large firm can produce a product at a lower per unit cost than can smaller firms.